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Date: October 26, 2020

Threats to a High-Net Worth Retirement: Are You Protected?

As your wealth grows, it’s easy to get complacent. When you have a steady flow of income coming in, it’s understandable to feel comfortable. You’ve made it! But success can change very quickly. And the more money you have, the more money you have to lose. So, it’s important to ask yourself: Am I protected? 

Not everyone’s financial needs are cut-and-dry. The more money you have, generally speaking, the more complex your financial needs are. 

  • How will taxes affect your retirement? 
  • What would a lawsuit or divorce do to your financial plan? 
  • How do you protect your assets for generations to come?

At Paradigm Financial Advisors, we take risk and financial advisory services very seriously. Below are 3 threats we want you to be aware of. 

Bad Advice

If you’re looking for a financial advisor, it’s important to know where to look and what to look for. Far too many investors simply follow advertisements by big-name firms, whether on television or delivered via another source. It may seem logical to go with a big firm that seemingly has a good reputation, but slick marketing only means the firm has a big enough marketing budget to pay for it. Does the ad tell you if you’ll really be working with fee-only fiduciary financial advisory firm? 

Unfortunately, working with the wrong financial advisor is a common mistake. And it isn’t just young professionals taking this route. Sadly, we see far too many people choose a financial advisor to work with simply because they’ve heard of the firm’s name. But here’s why that can be dangerous.

Big Names Often Have Big Expenses 

The obligation to generate substantial revenue leads many big-name firms to set revenue quotas for their financial advisors (who can be called brokers, asset managers, wealth managers or any number of other titles). 

Revenue quotas are not the friend of prudent investors. Why? Because a financial advisor with a quota may be very tempted to try and sell you something that you don’t really need, that isn’t the best product or that may not be in your best interest.

In fact, they may not only be tempted to do these things, they may be instructed to, to keep their jobs or be eligible for bonuses or promotions.

As a result, a big-name financial advisory firm may advise you to buy a specific stock that fulfills the quota opposed to another stock that may well exhibit less risk or less volatility. Or you may be advised to buy life insurance or another financial product that you don’t really need.

Big-Name Firms May Need to Satisfy Many Different Stakeholders

Big-name financial advisory firms also often need to satisfy their stakeholders. Upper management, for example, reports to a Board of Directors. If the firm is publicly traded, it answers to shareholders, who may follow its financial results and public profile zealously.  

Pressure from different stakeholders can lead firms to emphasize financial results over good advice. Again, the pressure on financial advisors to produce sales, high commissions or higher Assets Under Management may cause them to favor their own financial benefit over yours.

Board members or upper management may also favor certain assets, sectors, industries or companies over others, due to economic predictions, personal relationships or even geographic proximity. As a result, financial advisors may feel they need to choose investments in these assets, sectors, industries or companies. 

By contrast, fee only financial advisory firms have a legal responsibility to put their clients’ best interests first, suggesting investments or products they think will benefit a client’s goals and portfolio the most. 

Paradigm Financial Advisors was one of the first fee-only, fiduciary providers in the St. Louis area. We provide objective advice free of conflicts of interest and serve our clients in a fiduciary capacity, meaning we act in their best interest at all times. For more of what this looks like, click here.

Paradigm Financial Advisors is a fee-only financial advisory firm. Contact us to see how we can help. 

 

Taxes 

Another common threat to retirement plans can be taxes, especially when they’re not incorporated into your overall plan. Many financial advisors focus on investments and not about reducing or minimizing your taxes. Especially with high-net worth retirements, taxes can take a big bite out of your plans. This applies to both your retirement and your estate plans. 

As a full-service firm, Paradigm Financial Advisors has a CPA and attorney under the same roof, allowing us to implement tax-planning strategies directly into our clients’ retirement plans. Tax-efficient strategies help you keep (and leave behind) more of what you have accumulated.  

In any retirement plan, it’s important to run tax projections during the year to help you estimate your tax liability and determine if you need to adjust withholding percentages or estimated tax payments. Your financial plan should also incorporate tax-loss harvesting opportunities in your taxable accounts to help reduce or eliminate future capital gains taxes.

Lawsuits and Divorce 

It’s unfortunate, but often times, the more successful you are, the more of a target you can become. For this reason, it’s critical to manage your risk as your wealth grows. 

Are your personal assets protected from creditors? What about a lawsuit, business disagreement with your partners or a divorce? While growth is important, it’s just as important to protect what you have, not just for you, but also your beneficiaries. 

Takeaway

If your portfolio takes a hit prior to or early in retirement, it can limit your choices later in life – sometimes, severely. Having a sound financial plan in place that acknowledges the threats you may face is key to reaching the goals you set forth. The right plan can help prepare you for unexpected events so you’re not pushed too far off course. 

It’s a common misconception that successful people don’t need financial planning help – they have enough money to cover their needs. But, in fact, high-net worth individuals may benefit more from working with a financial advisor, as their financial lives can be complex. 

If you’re looking to employ the help of a financial advisor for the first time or are ready for a second opinion, contact the Paradigm Financial Advisors team to see how we can help.

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Jim Reding
Author:

Jim Reding

Jim is CEO and Managing Member of Paradigm Financial Advisors LLC.